Optimism after meeting with CDF colleagues: Wells analyst

After a roundtable conference call with floorplan colleagues at Wells Fargo Commercial Distribution Finance, Wells Fargo Securities analyst Tim Conder reports in a research note provided to Powersports Business that the “broad takeaway was an expression of optimism that if the consumer is able to manage cash flow through the expected sharp downturn (duration is the question), we could see a meaningful bounce-back in Powersports retail once visibility improves and stay-at-home orders are lifted. While the general assumption is for restrictions to ease beginning in May, any prolonged delay would create greater challenges for dealers (secondarily OEMs), especially in Marine given the shorter season, inventory turns ~2-2.5x and price points.”

Conder adds that “we hold a more aggressive Powersports market recovery outlook into CY21 vs. consensus given the COVID-19 shock was preceded by (1) a healthy consumer/industry fundamental backdrop, (2) YTD early March 2020 industry retail momentum, and (3) few consumer economic excesses and better OEM/dealer business practices vs. 2008-2010.

“Sub-sector retail trends were mixed in 2019, but 2020 began with early positive momentum across the board through mid-March. While there was a noted slowdown the second half of March, floorplan liquidation $ (retail proxy as ~1 week lag) were tracking on par yr/yr into April. However, looking closer at daily trends for the past 2-3 weeks, day-to-day liquidation levels have been fairly consistent whereas late March would typically see seasonal acceleration. Positively, wholesale shipments are very measured, maintaining an ongoing healthy balance with retail and limiting any channel build. Note channel inventories and credit metrics entering 2020 were in the best condition in 5 years.

“Most dealerships remain open to some extent depending on localized restrictions, but the COVID-19 impact is being broadly felt. Some regions that are less populated and have less restrictions including the N. Rockies and Plains (heavy skew to SxS/ATV) are faring relatively better. Populated coastal regions (more important for motorcycles) are seeing a greater impact. While too early to estimate the impact of depressed oil prices, we are concerned that sustained pressure on the sector could depress demand particularly for SxS.

“We are less concerned with the Core Powersports group in the event a prolonged shutdown into June/July occurs given the longer selling season (fall important for ORVs), lower price points, and selling to the outdoor lifestyle. Powersports OEMs and lenders have all stepped up with varying levels of cash flow assistance (floorplan interest coverage) to support dealers near-term.”

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